O-LEVEL ECONOMICS

REVISION 02

PAPER 2
 Which of the following would appear as a credit item in the UK current
2
1 account?

* A Money sent by UK residents to their relatives abroad

* B The purchase by a French company of a UK insurance business

* C The expenditure of Japanese tourists on holiday in Britain

Expenditure by the British Government in maintaining foreign embassies

* D overseas

Multichoice Questions
 The current account on a country’s Balance of Payments is most likely to
3
2 benefit from a depreciation of its currency when it is experiencing

* A Price elastic demand for imports

* B Full employment

* C Price inelastic demand for exports

* D High interest rates

Multichoice Questions
 A country is running a persistent trade deficit; the most likely effect of this is
4
3 to

* A Cause a rise in employment in export industries

* B Reduce consumer spending on imported products

* C Cause an appreciation in the value of the exchange rate

* D Reduce the level of aggregate demand

Multichoice Questions
 If the economy is at full employment, what might be the effect of an increase
5
4 in the value of exports?

* A Higher deflation

* B Higher inflation

* C Higher employment

* D An increase in spare capacity

Multichoice Questions
 BUBBLE QUIZ

The number of answers that are correct can range from zero to all four!

Identify the correct answers

 1 Which of these is the likely outcome if the Bank of England raises interest
rates?

The rate of
The exchange The rate of inflation The exchange The rate of
The exchange rate inflation will The exchange rate The rate of inflation
rate will
will depreciate
will become rate will
will appreciate
inflation will
will accelerate
become
negative
depreciate appreciate accelerate
negative

A B C D
Identify
NONE the
ARE
correct
CORRECT!
answers.
 Past Paper Questions

1) Explain two reasons/ causes of a fall in a country’s foreign exchange

rate. [4]
2) Explain two reasons why the value of a country’s exports may be
greater than the value of its imports. [4]
3) Analyse how a rise in a country’s foreign exchange rate worsens its
current account. [6]
4) Discuss whether or not an increase in a current account surplus will
benefit an economy. (8) TB
 Past Paper Questions

1) Explain two reasons/ causes of a fall in a country’s foreign exchange

rate. [4]
Foreign exchange is a market
A fall in Demand & a rise in supply would depreciate a currency
Inflows represent Demand (If export falls demand falls)
Outflow represent supply (if import increases supply increases)
Changes in interest affect currency value; when interest falls, demand
for the currency falls and depreciate and vise versa
 Past Paper Questions

2) Explain two reasons why the value of a country’s exports may be

greater than the value of its imports. [4]
Depreciation
Relative low inflation (AD falls)
Increase in productivity (AS increase)
Government policies (Policies that reduces AD and increases AS)
 Past Paper Questions

3) Analyse how a rise in a country’s foreign exchange rate worsens its

current account. [6]
4) Discuss whether or not an increase in a current account surplus will
benefit an economy. (8) TB
Any Question?